TORONTO (AP) – The Canadian economy contracted at a 3.4 percent annual pace at the end of 2008, the biggest decline since 1991 but not as large a contraction as in the United States or Japan.

Finance minister Jim Flaherty had indicated he expected Monday’s report from Statistics Canada would show the economy has fallen off the table. Economists forecast Canada’s gross domestic product would shrink between three or four percent in the October-December quarter.

The 3.4 percent annualized GDP decline is not as steep as the 6.2 percent drop in the United States, the 12.7 percent decline in Japan and the 20.8 percent pullback in South Korea.

“The American economy contracted twice as quickly,” Prime Minister Stephen Harper said in Parliament. “Our economy remains in a position of relative strength.”

Canada has avoided government bailouts and has not experienced the failure of any major financial institution. There has been no crippling mortgage meltdown or banking crisis north of the border where the financial sector is dominated by five large banks.

President Barack Obama said last month than the United States should “take note” of how Canada has shown itself to be a good manager of its financial system. Harper has said Canada has strong regulation that encourages a cautious culture in the banks.

“We’ve felt some of the pain, but we didn’t have the excesses that we’ve seen in a number of other countries. I guess that’s not terribly comforting that the 3.4 wasn’t as bad as many other countries,” said Craig Wright, chief economist at the Royal Bank of Canada.

But the global financial crisis and the global sell-off of commodities have hit Canada hard. The central bank expects economic output will contract 4.8 percent in the first quarter of 2009.

“You’re looking at another bleak first quarter as well,” Wright said.

Avery Shenfeld, senior economist at CIBC World Markets, expects at least a five percent decline in the first quarter.

“This really was an abrupt turn for the Canadian economy in the last couple of months of 2008,” Shenfeld said.

Exports fell 4.7 percent in the fourth quarter, the sixth consecutive quarterly drop, which represents the longest slump in more than 60 years of records.

TD Bank chief economist Don Drummond said everything just fell off a cliff in Canada in October or November.

“Everything we’ve had since has just been really ugly,” Drummond said. “I suspect the first quarter of 2009 will be worse.”

Canada’s main stock exchange index fell more than five percent on Monday.

Canada lost a record 129,000 jobs in January as the unemployment rate surged more than half a point to 7.2 percent, the single-worst monthly job loss figure in the country’s history.

Flaherty has said he needs a free hand in speeding through $2.4 billion in emergency stimulus funds. The government unveiled a $32 billion economic stimulus package in January.

The decline in growth likely means Canada’s central bank’s will cut interest rates on Tuesday. The Bank of Canada cut its key interest rate to 1 percent in January.

Drummond said the domestic side of the Canadian economy was in much better shape than other countries, so while the weakness from exports and the decline in commodity prices have crept into the Canadian economy, Canada did have some stability.

“We haven’t had a collapse in the housing sector,” Drummond said. “While there are some difficulties in the credit market they are not nearly as exacerbated as most other countries.”

Only subscribers are eligible to post comments. Please subscribe or to participate in the conversation. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.